Tesla Share Price Falling Despite Blowout Earnings: How Come?

Tesla share price fell heavily yesterday despite a Q2 2020 earnings result that simply blew expectations out of the water. The stock plunged nearly 5% yesterday and has set up a bearish engulfing pattern that should get bulls on the stock a spot of bother. I did identify the potential for a selloff in an earlier piece about Tesla’s share price, where I pointed to the steep nature of the stock’s ascent as a setup which technical analysts typically find unsustainable. 

Tesla had reported a net income of $104million net profit and revenues of $6billion, which surpassed estimates of a loss of $250 million and revenues of $5.4 billion. This result marks the 4th successive profitable quarter for Tesla, which has enabled it to satisfy listing requirements on the S&P 500 index. So why is the stock falling even after such a stellar result?

Tesla seems to be a victim of its success. After quadrupling in value in a year companies have been battered by the coronavirus pandemic, and seeing its share price more than doubled between March and July, the rise of Tesla’s share price has been very steep. The valuation of the stock may have been priced into the stock price action of June and July. As some analysts at Wall Street are saying, the report was good, but not precisely so great. If Tesla gets listed in the S&P 500, it may have to sell off some of its stock to reduce volatility and make it more attractive to index funds. This could negate upside moves in the short-term. 

Tesla share price is currently down 4.78% in premarket to 1440.04.

Technical Outlook for Tesla Share Price

Tesla looks like it is getting set for a lower open on the day. A bearish close today completes the outside day formation, which sets the stage for further downside on the pair and sets up a possible breakdown opportunity.

A breakdown of the 1433.50 support level (14 July low) sets up a move further south, with 1307.51 (8 July low) being the closest downside target. Further selling has the potential to take Tesla share price down to the 1134.35 support, thus closing the price gaps of 1st and 2nd July.

On the flip side, a bounce from the 1433.50 support allows the stock to push for a retest of the 1678.8 resistance, with the 1794.99 all-time high remaining intact as an upside target.

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Tesla Share Price Chart (daily)

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